What Equity Release Costs Can You Expect in 2024?

Would You Like to Uncover the Impact of Equity Release Fees, Interest Rates and Expenses? Learn How to Navigate the Complex World of Equity Release Costs and Safeguard Your Retirement Dreams. Read On…
  • Last Updated: 30 Jan 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways:

  • The average equity release costs in the UK typically range from £1,500 to £3,000, including fees for legal services, advice, and valuation.
  • Equity release does not generally come with hidden costs, but it's vital to read and understand all the terms and conditions before you make a commitment.
  • To minimize costs, consider shopping around for competitive rates, opting for a drawdown plan, or negotiating fees.
  • Equity release costs can vary by provider, influenced by factors such as interest rates, valuation fees, and adviser charges.
  • Factors influencing the total costs include the type of plan you choose, interest rates, the value of your property, and any additional service fees.

Understanding what equity release costs can be a crucial aspect of navigating homeownership and retirement planning. 

However, recent data suggests that many homeowners have been able to manage their equity release costs.

In 2022, over 90,000 customers made penalty-free partial repayments, reducing their debt by £102mln and saving £116mln in future interest costs (as reported by the Equity Release Council).1 

Does this mean that equity release costs are more manageable than you may have thought? 

In This Article, You Will Discover:

    By understanding the construct of fee structures, interest rates, and other processes that influence the amount of equity you can release, you can navigate the associated costs wisely.

    Our dedicated team at Every Investor has conducted extensive research to compile the most accurate and current information on equity release costs. All the content we publish goes through a rigorous fact-checking process and we strive to update our information as market conditions change.

    Therefore:

    What Is Equity Release In The UK?

    For those aged 55 and older, releasing house equity is an option to access the financial value of their home without selling it.

    This arrangement can yield a lump sum, periodic income, or both, secured against the homeowner's property.

    UK-specific equity release schemes include lifetime mortgages and home reversion plans.

    These are beneficial for supplementing retirement incomes, paying for home refurbishments, or covering eldercare expenses, providing a flexible financial resource for later life planning.

    What Are the Typical Costs Involved in Equity Release in the UK?

    Equity release costs in the UK can vary greatly depending on the provider and individual circumstances, however, typical costs include arrangement fees, legal fees, valuation fees, and broker's fees.

    Arrangement fees usually range between £500 and £800, legal fees between £500 and £1,500, and valuation fees depend on the property's value.

    Broker's fees can be up to 2% of the total amount released.

    It's crucial to remember that additional costs such as early repayment charges and interest rates should also be considered.

    Early repayment charges can be substantial, often reaching 25% of the initial loan if repaid within the first 5 years.

    Interest rates on equity release schemes average around 5.20% to 6.30%, but can be lower or higher depending on market conditions and lender's policies.

    Hence, it's always advisable to seek professional financial advice before committing to an equity release.

    What Are the Equity Release Set-Up Costs?

    Equity release set-up costs include professional and administrative fees from the advisor, solicitor, surveyor, and lender.

    These costs typically range from £1,500 to £3,000, depending on the lender.2 

    In the following discussion, we will explore the details of each charge.

    Advice Fees

    Advice fees for equity release advisors are typically paid upon deal completion, with initial consultations often being free. 

    Alternatively, some arrangements may include these costs in the commission, which are then incorporated into the total cost of the equity release product.

    To avoid surprises, it is advisable to clarify the advisor's payment method before the consultation.

    Application Costs or Administration Fees

    Application costs or administration fees cover equity release setup tasks like background checks and document verification. 

    While these costs vary among providers, homeowners typically pay them as part of the overall equity release plan expenses. 

    However:

    Reviewing each provider's terms and conditions is necessary as some may include these costs in the loan amount.

    Surveyor's Valuation Fees

    Surveyor's valuation fees involve the cost of a professional assessment of your property's market value by a professional registered with the Royal Institute of Chartered Surveyors (RICS), typically required by lenders for equity release plans. 

    Homeowners generally pay these fees as part of the setup costs, which may need to be settled upfront; however, some lenders may offer a free property valuation.

    Solicitors' Fees

    Solicitors' fees, an essential part of equity release, cover legal matters. 

    Following the ERC's recommendation, homeowners should seek independent legal advice from an experienced solicitor to comprehend their rights and responsibilities.3 

    These fees, distinct from the provider's legal charges, are typically paid by the homeowner during the setup phase.

    What Are the Additional Costs With Equity Release?

    The additional costs with equity release primarily include Early Repayment Charges and accrued interest. 

    Early Repayment Charges

    Early repayment charges (ERCs) come into play if you repay the loan before the prescribed length of the contract has ended.

    This may happen if you decide to move and can not take your loan with you, or if you change your mind about your equity release plan.

    Important:

    Early Repayment Charges can be substantial on an equity release plan. 

    These charges usually work on a sliding scale, decreasing as time passes4, but make sure you are aware of how these charges are applied (as stipulated in your loan agreement). 

    Interest

    Interest on equity release plans, calculated on a compounding basis, can significantly increase your total debt if no repayments are made. 

    Even though repayments are not mandatory, choosing monthly payments can help mitigate interest accumulation.

    Why could that be a good idea? 

    Typically, these plans conclude when you pass away or enter care, meaning a plan started at the age of 62 could accumulate 28 years of compound interest by the age of 90, demonstrating the potential scale of interest costs.* 

    *This is an indicative scenario.

    Unforeseen Costs

    Unforeseen costs of equity release schemes can impact a homeowner's financial outlook significantly. 

    Potential costs to be mindful of:

    • Equity release may cause a reduction in available equity for future needs, as the accumulated interest on the loan can quickly eat into the home's value, leaving less room for further borrowing. 
    • Equity release can decrease the amount of inheritance left for loved ones because the sale of the property often goes towards loan repayment. 
    • The income from equity release may affect your eligibility for means-tested benefits, both now and in the future, which could result in an unexpected loss of income. 
    • Should the homeowner wish to move to a less expensive property in the future, the new property may not provide enough equity to cover the outstanding loan, potentially necessitating an early repayment of some of the loan amount. 

    Furthermore, while equity release schemes supervised by the Equity Release Council do not carry the risk of negative equity, it is crucial to note that other costs, such as fees associated with changing providers, can also come into play, contributing to the overall expense of equity release.

    What Is the Total Cost of Equity Release?

    The total cost of equity release includes initial fees (advice, application, surveyor valuation, and solicitors' fees, as discussed above) and the compounded interest over the loan's lifetime. 

    Early Repayment Charges may also apply, and you should keep potential unforeseen costs (like the loss of benefits) in mind. 

    The precise amount relies on factors such as the selected plan, the provider, and the borrower's circumstances.

    What Factors Influence Equity Release Costs?

    The factors that influence equity release costs include the chosen plan, the interest rate, your property value, the homeowner's age and health, and the provider's terms. 

    Early Repayment Charges can also impact the costs if the loan is repaid before the agreed term. 

    Type of Plan

    The type of plan, either a lifetime mortgage or a home reversion, directly impacts its costs. 

    Lifetime mortgages involve loan repayments with accrued interest upon death or moving into care, with costs influenced by the chosen interest rate and repayment plan. 

    Home reversion involves selling a portion or all of your home for a lump sum or regular payments, with costs varying based on the sold portion and the company's terms.

    Age and Health

    Equity release providers consider factors like life expectancy and potential health issues to calculate the releasable amount, using actuarial risk, a process that employs statistical models and data to manage financial risks.5 

    Younger borrowers pose a higher risk due to a longer potential loan period and life changes, whereas older or less healthy borrowers present a lower risk because of their shorter life expectancy. 

    Lenders determine eligibility and releasable amounts based on these factors and their own risk criteria.

    Property Value 

    Property value influences the cost of equity release by determining the available equity, affecting the loan size and accruing interest. 

    The loan-to-value (LTV) ratio, typically ranging from 20% to 60%6, represents the borrowable percentage based on your property's value. 

    A professional surveyor assesses this value, considering factors such as market conditions, property size, location, condition, and unique features like solar installations.

    Interest Rates

    The interest rate significantly impacts the cost of equity release, determining how much the loan grows over time, especially as interest is typically compounded in a lifetime mortgage. 

    In short:

    Higher rates cause the debt to grow faster, whereas lower rates slow the debt's growth. 

    Luckily:

    You are protected by an Equity Release Council product standard that requires all lifetime mortgages to have fixed or capped variable rates.7

    Note, however, that these rates may still be higher than traditional mortgage rates, which could result in higher total costs over the long term

    Interest rates can vary among equity release providers, so it is advisable to compare offers from different lenders. 

    Provider's Terms

    The provider’s terms can significantly impact the cost of equity release. 

    These terms can include interest rates, the presence or absence of Early Repayment Charges, and the flexibility of the plan.

    Provider terms worth considering:

    • Interest rates, as previously mentioned, determine how much the loan grows over time, and different providers may offer different rates, thus affecting the cost.
    • Early Repayment Charges are fees that are levied if you decide to repay the loan earlier than agreed. These charges can vary greatly between providers, and in some cases, may be substantial.
    • The flexibility of the plan, such as the option to make partial repayments, drawdown additional funds, or the ability to move the plan to a new property, can also impact the cost, depending on how you use these features.

    Seeking independent financial advice can provide valuable insights and help you navigate the specific fees and terms of multiple regulated providers to select the most suitable option for your circumstances.

    How to Minimise Equity Release Costs

    If you are wondering how to minimise equity release setup costs, there are some strategies you could consider. 

    These include:

    • Comparing different providers to find a favourable interest rate. Most equity release providers have equity release calculators on their websites which will give you a rough idea of how much equity you may be able to release. There are also comparison sites, like ours, where you can consider the pros and cons of the different providers.
    • Assessing the reputation of different providers through online reviews and references. Look at independent sites such as Trustpilot, and do not go purely on the reviews on the provider’s website.
    • Enlisting the help of an advisor to determine the most economical plan for your situation.
    • Opting for a drawdown lifetime mortgage to only borrow what you need when you need it, reducing unnecessary interest. 
    • If possible, considering regular interest payments to prevent compounding of interest.
    • Understanding all the fees involved and ask your provider if any can be negotiated or waived.

    Look for an independent equity release advisor, who is an Equity Release Council member and authorised and regulated in the UK by the Financial Conduct Authority.

    Common Questions

    What Are the Average Equity Release Costs in the UK?

    Are There Any Hidden Costs in Equity Release?

    How Can I Minimize Equity Release Costs?

    Does Equity Release Cost Differ by Provider?

    Which Factors Influence the Total Cost of Equity Release?

    When Do You Pay Your Equity Release Fees?

    What Are Early Repayment Charges (ERCs) For Equity Release and Lifetime Mortgages?

    Can You Make Partial Repayments on Your Equity Release Plan?

    Can You Repay the Capital and Interest on Your Equity Release Loan?

    What Are the Steps to Finding the Cheapest Equity Release?

    Are There Hidden Equity Release Costs I Need to Be Aware Of?

    Are There Equity Release Costs Some Lenders Do Not Charge?

    Can You Choose Not to Make Monthly Repayments?

    What Happens if You Want to Move or Sell Your Property?

    How Does Equity Release Affect Means-Tested Benefits?

    Is Equity Release a Competitive Means of Borrowing?

    Will Providers Give You a Breakdown of Equity Release Costs?

    What Interest Rate Will You Pay on Equity Release?

    Does Your Loan-to-Value Ratio Affect Your Equity Release Interest Rate?

    Do You Need to Pay Tax on Equity Release?

    Is It Worth Paying a Product Fee to Secure a Good Rate?

    How Do Capital Gains Affect Equity Release?

    In Conclusion

    Understanding and carefully evaluating the costs associated with equity release is crucial for making informed financial decisions. 

    From application fees and surveyor's valuation fees to solicitors' fees and interest charges, each expense plays a role in the overall cost of your equity release plan. 

    Remember to consider factors such as your age, health, property value, and loan-to-value ratio when assessing the costs involved. 

    Through careful research, comparing providers, and seeking independent financial advice, you can potentially reduce these costs and enhance your financial benefits.

    Speak to a qualified equity release broker or advisor if you wish to find out more about equity release and whether this type of product could be a good fit for you.

    By being proactive and well-informed, you can more effectively navigate the world of equity release costs, which could contribute to a secure retirement.

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